Increased prison terms for tax fraud and merged R&D tax relief scheme to be explored by the Lords Finance Bill Sub-Committee

The sub-committee will focus on the following provisions included in the draft Bill:

• The measures dealing with promoters of tax avoidance and increasing the maximum prison term for tax fraud;
• Reforms providing for the merger of the two existing schemes providing tax relief for Research and Development (R&D) expenditure and reliefs for R&D-intensive small and medium enterprises (SMEs);
• A measure changing the data that certain taxpayers are required to provide to HMRC.

This inquiry seeks written answers to these questions:

Dealing with promoters of tax avoidance and increasing the maximum prison term for tax fraud

1. How effective are the criminal offence for promoters, the power to seek disqualification of directors of relevant companies, and the doubling of the maximum prison term for tax fraud likely to be in deterring the promotion of tax avoidance and tax fraud?
2. What approach to prosecution is needed to support these measures? And is HMRC adequately resourced for the work involved?
3. Are there sufficient safeguards and appropriate governance around the criminal offence/disqualification measures? How necessary are these additions to HMRC powers
4. What evidence have you seen of people being recruited as directors to “front” companies involved in promoting tax avoidance in return for payment? How can the legislation allowing HMRC to apply for the disqualification of directors best be focussed on directors who have real control and influence over the companies’ activities
5. How should “the public interest” be interpreted in the context of the decision whether to prosecute these offences?

R&D reforms: a potential merged R&D scheme and additional relief for R&D-intensive SMEs1.

1. How much of a tax simplification would a merger of the two existing R&D schemes be?
2. How easy will it be for SMEs to adjust to a single RDEC-based scheme for R&D?
3. If the Government decides to merge the two existing R&D schemes, it has said the merger will take effect from 1 April 2024. What are your views on this timetable? How prepared are businesses, particularly SMEs, for these changes? What help and support will they need?
4. Are HMRC’s estimates of the costs to businesses of adjusting to these changes realistic? How costly is it likely to be for businesses to adapt?
5. What are your views on how a merged R&D relief scheme should deal with the treatment of subcontracted R&D?
6. What are your views on the proposed R&D scheme for R&D intensive SMEs? Has Government listened to business, as it said it would be doing, in designing this new scheme?
7. Is the additional support for R&D intensive SMEs appropriately targeted to incentivise the types of innovation the Government wants to encourage?

Additional HMRC data requirements

1. How straightforward will it be for businesses to provide this data to HMRC?
2. How accurate are the one-off and continuing costs of implementing the measure? and to what extent are these proportionate to the expected benefits?
3. If this measure is implemented, what should be the timetable?
4. How confident are you that the measure will deliver the benefits claimed for it?

The sub-committee is interested to know about the experiences of taxpayers, their advisers, organisations, and other interested parties.

Lord Leigh of Hurley, Chair of the Finance Bill Sub-Committee, said:

“In its draft Finance Bill, the Government is proposing tougher consequences on promoters of tax avoidance and people convicted of tax fraud. It proposes a potential merged R&D scheme and additional tax reliefs for R&D intensive SMEs, as well as a measure which increases the data requirements from certain taxpayers to HMRC.

“These are important changes. To inform our work we want to hear from as broad a range of people and organisations as possible. If you have a view on any aspect of these proposals, please let us know what you think.”

The deadline for the submission of written evidence is Friday 6 October 2023.

Click here for more information on the inquiry, and details on how to submit evidence.